Originally published as a featured column in the January/February 2025 Issue of Indoor Comfort Marketing.

The re-election of Donald Trump and the GOP’s control of both the U.S. Senate and House of Representatives signals a fundamental economic and regulatory shift is likely on the way for the third time in eight years. With unified control of the federal government, the expected flurry of executive orders and new congressional initiatives that are likely to follow President Trump’s inauguration will likely have considerable effects on business owners seeking to grow, acquire or exit.


First, the Good News
In the lead-up to the November election the financial markets were already showing signs of improvement for dealmakers, even if activity remained muted. The Fed cut interest rates in September and November in response to reduced inflation, and by the time this article is published, we may have already seen another quarter point cut. The reduced cost of capital is starting to add some welcome heat to the previously tepid waters of the mergers and acquisition market for both large and small companies. Experts in the private capital space are projecting that the combination of lower interest expense with a record level of dry powder – funds sitting on the sidelines waiting to be opportunistically deployed – will kickstart greater M&A activity in Q1 2025. This reality will positively impact our industry, incentivizing buyers to more aggressively jump in and it will allow sellers that have been waiting patiently to consider exiting as they can secure stronger valuations and favorable deal structures.

Our observational data from within the heating and cooling industry indicates that the number of businesses being put up for sale has been gradually building in recent months after a slower start to 2024. Multiples for fuel distribution and HVAC businesses are largely holding up so long as parties are willing to be creative with deal structure. Deal timelines have stretched as financial buyers, strategics and cross-town acquirers continue to cautiously navigate a stubbornly expensive credit environment. Should interest rate cuts continue – and J.P. Morgan Research projects continuous quarterly interest rate cuts through 2025 – we can expect it will finally ignite the deal activity that many buyers were expecting to take place back in mid-2024.

In addition to positive signs in the financial markets, the Trump administration’s known affinity for lighter regulation, tax cuts and the promotion of fossil fuels all bode well for operations and could energize M&A activity. An easing of banking regulations, for example, could lower compliance costs for lenders and ultimately ease interest rates, fees and underwriting standards. The favorable regulatory stance could further reduce small business compliance costs – or at a minimum prevent new ones.

There’s a lot to be excited about. But it’s never as easy or straightforward as we might like.


Possible Headwinds
If we can assume the incoming administration will do what it says to the industry’s benefit, we should also assume the less beneficial outcomes of potential policies as well. The financial impact from the administration’s proposed 25% tariffs on products from Canada and Mexico and an additional 10% tariff on goods from China will challenge industries like ours that are reliant upon imported oil and equipment. Beyond the obvious impact of higher priced oil on borrowing costs and supply relationships, many of the industry’s biggest truck and parts manufacturers produce a portion of their goods in these countries. The Census Bureau and the American Iron and Steel Institute (AISI) report the U.S. imports over $43 billion in steel annually, with Canada and Mexico supplying more than half of the total. If enacted, such tariffs can be expected to raise the cost of tank wagons, bobtails and service vans as well as parts, equipment and steel tanks. Even domestic goods could be impacted by a rise in the cost of warehousing as wholesalers scramble to stockpile goods before tariffs take effect. This will necessitate a revisiting of capital expenditure requirements and margin setting.

And while the Trump administration is likely to be broadly business-friendly, federal policy is only one part of the equation. Operators and sellers in certain regions of the country will continue to grapple with unfavorable energy policies, “electrify everything” regulations, Clean Heat Standards and Cap and Invest programs. Sellers in these states are likely to continue to feel the pressure. These policies will introduce greater execution risk, which will effectively reduce the pool of interested buyers, especially those buyers currently operating in other regions with a more friendly legislative and regulatory environment. We can’t expect the favorable national policy landscape to meaningfully relax policies and regulations at the state level. However, rising demand for electricity driven by industries like artificial intelligence will likely create some positive outcomes that will blunt the unfavorable political landscape at the state level. As already strained power grids are pushed ever closer to the brink, the potential challenges to that problem could very well slow the transition away from fossil fuels.

Lastly, inflation currently sits at 2.3%, slightly above the Fed’s stated annual target of 2.0%. A far cry from the 9% the country experienced a little over a year ago, it wouldn’t take much to see inflation creep in the wrong direction. Add that to the uncertainty surrounding tariffs, potential labor cost increases due to promised immigration controls, and the possibility of federally mandated paid family leave, and there are quite a few factors in play that could further strain operating budgets in the coming years.


The Outlook is Mixed – But There’s Plenty of Room for Optimism
As you formulate your growth plan – or perhaps your exit strategy – in the shifting landscape, new factors are likely to reshape your approach even while existing local and state variables remain largely unchanged. A number of scenarios are likely to strengthen the hand of leaders on all sides. An active M&A environment means that buyers are excited to secure new businesses because they see the opportunity, and sellers are excited to realize attractive valuations. But it also means that leaders who choose to stay in the game also have significant opportunity to continue to grow their businesses, expand their offerings and increase their profitability. And 2025 may very well provide a win-win-win scenario such as the one I describe
above.

Overall, a cautious optimism prevails as reduced pressure on fossil fuels and the small business owner may act as catalysts to unlock capital for growth initiatives and drive more robust M&A activity for fuel distribution and HVAC owners. Like other operators and buyers in the market, we will continue to watch with keen interest as the national landscape takes shape in early 2025.


Jeff Simpson is the founder and managing member of Notch Capital, a private investment firm specializing in buyouts and recapitalizations of lower middle market businesses in the heating, cooling and home services industries. Notch Capital also provides advisory services to help these businesses strengthen their performance and analyze acquisitions.